Investors have been flocking to the safety of gold in recent weeks, pushing prices to their highest levels in nearly three months. Insiders say the move reflects anxiety over rapid changes seen occurring in the overall global political landscape. During times of uncertainty, many investors believe the precious metal will hold its value better than other assets. Edward Meir, a strategist at INTL FCStone says political uncertainty has not been this high since a debt crisis hit Greece and threatened to spread throughout the European Union in 2011, which sent gold prices to an all-time high of around $1,900 a troy ounce. New U.S. President Donald Trump has created some unease, but that is hardly the only uncertainty on investors’ plates. There is also the upcoming Presidential vote in France where there is concern far-right leader Marine Le Pen could win and subsequently pull France out of the European Union. Governments also face serious challenges from anti-establishment parties in Denmark, Germany and Italy this year. Investors are worried that populist movements threaten to unwind the political and economic order, worries that have helped push gold prices up +7% this year. Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, warns that investors should be leery of a combination of climbing gold prices and rising bond yields. Both the 1973-74 bear market and the 1987 Black Monday (market crash) were “preceded by three quarters (or roughly nine months) of rising bond yields and rising gold,” Hartnett noted. But while gold has risen five of the past six weeks, it is still down from election day. Also, the 10-year Treasury has fallen back since hitting its last high in mid-December. (Source: The Wall Street Journal, Bloomberg)
President Donald Trump signed executive actions on Tuesday to advance the Keystone XL and Dakota Access oil pipelines. Trump said the orders would create +28,000 new jobs in the United States, and that the pipelines would be built with U.S. steel and U.S. labor. “We will build our own pipeline, we will build our own pipes, like we used to in the old days,” Trump said. Keep in mind, his orders do not force the approval of either project but it does reopen the door to making them possible. Both pipelines require different approvals. Keystone, which would run from Alberta, Canada’s oil sands to the Gulf Coast in Texas, needs a presidential permit to build across the Canadian border. Dakota Access, developed by Energy Transfer Partners, needs an Army Corps of Engineers easement to build under Lake Oahe in North Dakota. Trump’s orders will expedite both. Trump also said he wanted to renegotiate terms with the pipelines’ developers, one of which could include getting a financial return from Keystone. TransCanada, the company developing Keystone, said they are already preparing their new application. Trump also met with executives from the big three Detroit automakers yesterday, promising to reduce “out of control” environmental regulations. Trump said that to a large extent, he is an environmentalist, but wants “regulation that means something.” Trump also stuck with his theme of reviving American manufacturing, urging the automakers to build new factories in the U.S.
Ahead of the release of the January Oil Report due out today, the head of the International Energy Agency (IEA) predicted a “significant” boost to U.S. crude output thanks to higher prices. Fatih Birol in an interview with Bloomberg in Davos yesterday said “a lot of shale plays in the United States would make perfect sense to produce.” Oil prices have risen about 20 percent since OPEC countries reached a deal to curtail supply last year. The Nov. 30 agreement prompted a surge in activity in the U.S. — not an OPEC member — where oil and gas producers increased drilling the most since April 2014. Birol did say that markets were on a path to rebalancing, but warned that “We are entering a period of much more volatility.” He added that as a result of a huge withdrawal of investment in drilling in recent years by big producers, whose profits have been hit by the slump, the market could ultimately see a major price spike in the years ahead. “This year, if there are no major investments coming, we may well see in a few years from now significant supply-demand gap with serious implications on the market.” Oil and gas discoveries around the world dropped last year to their lowest since the 1940s. The agency’s latest report is due out today. Meanwhile, OPEC’s monthly oil market outlook yesterday forecasts a falling oil supply surplus in 2017. OPEC said its members pumped 33.085 million barrels per day in December, down 221,000 barrels per day from November. As well as reporting lower output from its own members, OPEC cut its forecast of supply in 2017 from non-member countries following pledges by Russia and other non-members to join OPEC in limiting output. The group now expects non-OPEC supply to rise by 120,000 barrels per day this year, down from projected growth of 300,000 barrels per day last month, despite its own upwardly revised forecast of U.S. supply. Global oil demand growth in 2016 is expected to come in at 1.25 million barrels per day after a marginal upward revision of around 10 thousand barrels per day, mainly reflecting the better-than-expected performance in OECD Asia Pacific and Europe. World oil demand is expect to average 94.44 million barrels per day in 2016. In 2017, world oil demand is anticipated to rise by a solid 1.16 million barrels per day year-on-year to average 95.60 million barrels per day.
I thought “The Atlantic” and several other sources have presented some interesting thoughts and commentary regarding president elect Donald Trump and how things could play out in the event of a major virus outbreak. It seems like there’s some worry about how he and his team will respond. Many refer back to his tweets during the ebola crisis and wanting to ground all planes in or out of the U.S. that may have come in contact with infected areas. Also keep in mind he is a self-proclaimed “clean hands freak” and some suggest a bit of a germaphobe (Politico). Now all of sudden we have millions of birds being killed across Asia as a lethal strain of H7N9 is trying to be contained in China, India, Japan and South Korea. I should note that a few cases of the deadly virus are now being reported out of Russia. I have no idea if this particular virus makes its way to the U.S., but I suspect some type of deadly virus will be one of Donald Trumps first major hurdle. Some fear the team he has assembled will be extremely quick to make decisions, which could be both good and bad. There’s some in Washington that believe Trumps team could quickly seal all U.S. borders, ground all flights to and from any infected areas, roll out quarantine guidelines and potential declares martial law if need be to enforce rules. Obviously this would place a huge drag on the U.S. economy and create massive social unrest. These are all a lot of big “what ifs”, but I can assure you no one wants to have their loved ones who have traveled abroad locked out of their homeland. There’s a ton of moving parts to consider, but I am going to be keeping an extremely close eye on the viruses and pandemic possibilities during the next few years. I’m really starting to become more concerned about the frequency, severity and how exactly they will be managed. Keep in mind just three months after Barack Obama’s inauguration, a new strain of H1N1 swine flu was detected and it eventually reached global pandemic status. Then in September 2012, in the dusk of Obama’s first term, a new flu-like disease called Middle East Respiratory Syndrome (MERS) was described in Saudi Arabia. In December 2013, a year into Obama’s second term, the biggest Ebola outbreak in history began in Guinea before spreading to 10 countriesThen in late 2015 and early 2016, the Zika virus has already started sweeping the Americas. My point is it’s not a matter of if but when Donald Trump will have to deal with a deadly major virus outbreak.
I always remember famed Wall Street floor trader Art Cashin telling some of his favorite stories. One that has always stuck in my mind and has again resurfaced coming to me via e-mail from a few friends, is an awesome tale about “price discovery” involving two of our nations most famous business titans. As many of my friends in the trading world like to say, our Universities are filled with books and professors who are trying to elaborately explain business when perhaps we can learn the most from our ancestors and the stories associated with their great success. So the story goes… The two main characters of this timeless tale are Charles Lewis Tiffany (The famous Jeweler) and John Pierpont Morgan (JP Morgan).
Being the astute jeweler that he was, Mr. Tiffany knew that Mr. Morgan had an acute affinity for diamond stickpins. One day, Tiffany came across a particularly unusual and extraordinarily beautiful pin. As was the custom of the day, he sent a man around to Morgan’s office with the stickpin elegantly wrapped in a robin’s egg blue gift box with the following note:
“My dear Mr. Morgan. Knowing your exceptional taste in stickpins, I have sent this rare and exquisite piece for your consideration. Due to its rarity, it is priced at $5,000. If you choose to accept it, please send a man to my offices tomorrowwith your check for $5,000. If you choose not to accept, you may send your man back with the pin.”
The next day, the Morgan man arrived at Tiffany’s with the same box in new wrapping and a different envelope. In that envelope was a note which read:
“Dear Mr. Tiffany. The pin is truly magnificent. The price of $5,000 may be a bit rich. I have enclosed a check for $4,000. If you choose to accept, send my man back with the box. If not, send back the check and he will leave the box with you.”
Tiffany stared at the check for several minutes. It was indeed a great deal of money. Yet he was sure the pin was worth $5,000. Finally, he said to the man: “You may return the check to Mr. Morgan. My price was firm.”
And so, the man took the check and placed the gift-wrapped box on Tiffany’s desk. Tiffany sat for a minute thinking of the check he had returned. Then he unwrapped the box to remove the stickpin.
When he opened the box he found – not the stickpin – but rather a check from Morgan for $5,000 and a note with a single sentence – “JUST CHECKING THE PRICE.”
I just love this story as it shows us we always have to be”thinking”… Please share with the kids. Good Stuff!
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